Real estate or property is some thing that involves the commitment of funds to property with an aim to generate cash flow through rental or lease and to achieve capital appreciation. Real estate in practical terms refers to immovable property such as land and building.
Buying a real estate means the person acquires set of rights, including possession, control and transfer rights. Understanding the nuances of real estate investment is crucial because it usually involves a substantial investment and a long-term one. The real estate market can be unpredictable. This is particularly important when one goes beyond buying a home to actually 'investing' in real estate. There are a number of ways in which an investor can participate in the real estate market.
Real Estate Investment: Rental
One can opt for real estate investment with an aim to rent the property out to a tenant. The owner earns a continuous stream of rent from the tenant, but is responsible for paying the mortgage, taxes and any costs associated with maintaining the property. The owner also benefits from capital appreciation – increase in the value of the property over time.
The landlord runs the risk of not finding a tenant and could suffer negative monthly cash flows, with mortgage payments and maintenance expenses still to be borne. As compared to owning stocks and bonds, rental real estate requires a significant amount time and effort to be devoted by the landlord. Real estate investment always runs a huge risk of timely liquidity, liquidating a property is not as easy as liquidating any other financial asset. Cash flow from a real estate will be generally low to compared to that of a financial asset as the cost of managing a property is high and normally 2 – 3 months rental will have to provided for expenses like, maintenance, property tax, loss of rental due to vacant position, etc., One should do a thorough analysis return on investment, when investing in a FLAT for regular income.